Private student lenders and banks are starting to train their student loan offerings at one demographic who could afford rising tuition rates: parents.
Lenders such as SLM Corp (slm)—also known as Sallie Mae—and hot fintech startup SoFi are coming up with “parent loans” that give borrowers funds to pay for their college-bound children’s education without burdening students, according to the Wall Street Journal.
These parent loans come at a period where student loan debt is rising at a steady rate. Total student loan debt is estimated at around $1.3 trillion, and grows by about $2,726 every second, if you follow this debt clock created by education startup StartClass and MarketWatch. In a 2014 paper released by the White House, 71% of those earning a bachelor’s degree graduate with an average debt of around $29,400.
Increasingly, that debt is potentially passed on to students’ dads and moms—parents cosign around 90% of private undergraduate student debt, according to data firm MeasureOne. As such, these new loans offer a relatively cheaper route than taking up a federal student loan—Sallie Mae and SoFi, for instance, do away with origination fees, which is an additional cost attached to the processing of a loan, and that is a part of federal student loan programs. Creditworthy parents also stand to get lower interest rates with these loans, reported the Journal.
Schools such as Stanford, Boston College, and Carnegie Mellon University are working with these lenders to provide parents these new financing options, although it may still not be enough to combat rising tuition costs. “Education loans in general, whether for students or parents, are spreading out the costs over time; they are not cutting college costs,” Mark Kantrowitz, vice president of strategy at Cappex.com, told the Journal.